Just open that file in photoshop and edit away. Save as jpg or gif and upload to a folder on your server. Enter the img location into the Background Image Url field and check out your new login page. I just used it to create a custom login for a client. Took about 5 min. I painted over the Binary Moon layer and threw the logo up at the top. You may have to play with it a few times to get it positioned properly so that it doesn't cover the text fields. Set your bg color, font color and hyperlink color and you are good to go.
Hope that helps. I was lost as well for a few minutes until I found the PSD file (I had just installed the plugin via the WP dashboard and hadn't unzipped and looked at the folder contents) but once I found it it was smooth sailing.